How to encourage employees to save enough for retirement is an age-old conundrum. For those of us working in this industry, the reasons to do so are clear. However, for employees without an in-depth knowledge of the pensions system, the time until they reach retirement may mean saving for this is low on their list of priorities.
Several publications released this week have, once again, highlighted the challenges facing individuals. The Pension and Lifetime Savings Association’s (PLSA) Retirement Lifestyle Barometer revealed that the cost of achieving a moderate standard of living in retirement has increased by £8,000 a year, based on factors such as employees’ expectations and the current cost of living. Saving enough to fund an additional £8,000 for every year of retirement may be considered challenging at the best of times, let alone during the ongoing cost-of-living crisis.
This was supported by the findings of a report on workplace pensions savings among lower earners published by the Department for Work and Pensions (DWP), which revealed that short-term budgetary concerns and a lack of support from their employer were among the top deterrents from saving into a pension.
Individuals could face increased pressure should the state pension age increase further. According to research published by the International Longevity Centre this week, the state pension age needs to increase to 71 by 2050. Employees looking to retire at a younger age, therefore, will need to build up a larger pension pot during their working lives in order to be able to do so.
Female employees are also likely to be particularly affected. According to the 2024 gender pensions gap report by Now: Pensions and the Pensions Policy Institute, over the course of their working life, the average woman will save a staggering £136,000 less into a pension by the age of 67 than the average male employee; £69,000 compared to £205,000. In order to close this gap, a woman would need to work for 19 years longer than her male counterparts.
With so many factors adversely impacting pensions saving, it is perhaps unsurprising, therefore, that 72% of generation Z employees, those currently furthest from retirement, are concerned they may not be able to stop working at the state pension age due to financial hardship, based on data from Resource Solutions.
But, what is the answer? With many employees currently feeling the pressure of rising prices amid the cost-of-living crisis, increasing pension contributions is unlikely to be a priority, particularly for those on lower incomes. The high cost, and frequent scarcity, of childcare, meanwhile, will undoubtedly also continue to impact pension savings.
Possible solutions that have been mooted include increasing minimum contributions under auto-enrolment legislation and encouraging employers to increase communications around the importance of saving for retirement. But with many employees continuing to feel the pinch on their disposable income, are such measures truly realistic? What more is needed in order to bring about the change in mindset required for many more to achieve a comfortable retirement?
Debbie Lovewell-TuckEditorTweet: @EmployeeBenefits
